Weekly Market Report: June 24, 2022
We saw some typical bear market activity last week with equity markets continuing to churn, this time to the upside despite mounting evidence of a cyclical slowdown and global central banks chasing commodity prices. Some inflation data out of the U.K. and Germany provided some encouraging data points while other economic data made clear economies are still expanding, though at a decelerating pace. U.S. equity markets enjoyed a nice rally last week of over 6% while developed international (+3.75%) and emerging markets (+2.5%) were up but not as strong. Bond markets enjoyed further decline in interest rates while the USD lost a little ground and commodities, thankfully, did as well.
• With the S&P 500 officially in a bear market, the key questions are how much deeper and how much longer? Depth and duration of the economic slowdown currently unfolding will be the determinant but either way, we’re on track for the worst six month start to a year since 1932.
• Wall Street analysts have been slow to adjust their year-end price targets for the S&P 500 with the S&P 500 now trading over 20% below its bottom-up consensus analyst price target – one of the widest divergences on record.
• Market and sentiment-based inflation expectations alongside inflation data continue to paint a concerning but mixed picture, particularly with a focus on headline data series.
• Some of the differences between CPI and PCE inflation include fixed versus dynamic weightings and differing data sources with the key differences in shelter and medical costs.
• Economists surveyed by The Wall Street Journal have dramatically raised the probability of recession, now putting it at 44% in the next 12 months, a level usually seen only on the brink of or during actual recessions.
• An interesting look at the origin of U.S. company profits from the BEA and Goldman Sachs does challenge some of the narratives of achieving adequate diversification by owning a broad basket of U.S. companies.
• A decoupling of U.S. consumer sentiment and unemployment has been one of the more remarkable reminders of the toxic power of inflation.
• With much attention on the health of the U.S. consumer due to the exceptional job market and household liquidity measures, it’s worth noting debt service on the part of corporations is also in a good position.
• Fossil fuel sales from Russia since their invasion of Ukraine have remained relatively stable but the composition has certainly changed and is expected to continue.
Economic Release Highlights
• Preliminary June PMI data saw broad based deceleration but remained in expansionary territory.
• U.S. Existing Home Sales for May (5.41mm) were down 3.4% last month and stand down 8.6% year over year.
• U.S. New Home Sales for May (696k) were up 10.6% over the prior month but are down 5.95% year over year.
• The average 30-year mortgage rate edged up to 5.81%, a level not seen since the advent of the global financial crisis in 2008.
• UofM Consumer Sentiment Index for June slid to 50.0, down from a 58.4 reading the prior month.
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